Asia's new aristocrats

What Indians and Chinese make of their tycoons

A TINY tropical fish sits in a glass vase on each table in a restaurant in the lobby of the Oberoi Hotel. A bright red piano fills the air with music. The passion fruit soufflé with bitter chocolate pavé and goats' milk ice cream is delicious. The bill would ruin most Indians.

One day gunmen walked into the restaurant and shot diners and staff at close range, spattering blood over the walls. At least 175 people died in the attacks that began on November 26th 2008 in Mumbai. The terrorists appear to have chosen their targets precisely. A crowded station, to maximise the death toll. A small Jewish centre. And the poshest hotels in Mumbai—the Taj and the Oberoi—which were packed with the city's elite.

“Everyone in my social class lost friends,” says Cyrus Guzder, the chairman of AFL, a logistics firm. “We all socialise at the Taj and the Oberoi. We've all been to weddings and parties here.” He sits in a soft chair in a members-only club in the Oberoi as a waiter serves canapés. The club is quiet and uncrowded, a rare luxury in this heaving, bustling city of 14m.

India's movers and shakers all seem to know each other. The Indian elite have created their own islands, frowns a cabinet minister: “It's a bit unhealthy.” They send their kids to private schools. They have their own water and electricity. So they barely notice how bad the government is at delivering power, water and schooling to the other 1.2 billion Indians.

Yet to many Indians the nation's tycoons are heroes. A few made their fortunes corruptly, but the software moguls of Bangalore created a huge export industry out of nothing, and many others helped to spur India's galloping growth. Ratan Tata, the soon-to-retire boss of a conglomerate that produces everything from tea to cars, lives modestly and treats his employees well. The brothers Anil and Mukesh Ambani are more controversial, but they have turned the family business into two global giants, with interests from chemicals to entertainment.

Some Indian gazillionaires are flashy. Mukesh Ambani's house has 27 stories, three helipads and three floors of hanging gardens. Vijay Mallya, a beer-and-airlines magnate, constantly amuses the newspaper-reading public with his speedboats and sports teams. But for most of the country's elite the most conspicuous item of consumption is sending their children to university in America.

In much of India, life is getting perceptibly better each year. Wealth per person has vaulted by 150% in the past decade, from $2,000 to $5,000. Many Indians think the nation's entrepreneurs deserve some of the credit. In Dharavi, a slum outside Mumbai, an illiterate mother called Aruna sits in her tiny one-room flat, which is home to ten people. Asked how she feels about the rich, she says: “They have worked hard. And we must work hard, too.” Her eldest daughter has a job entering data at a bank. The next one is studying diligently. The family may be near the bottom of the ladder, but it sees a way up.

The party is watching you

The relationship between rich and poor in China is different. China's stellar growth has lifted some 500m people out of poverty. Much of the credit belongs to Chinese entrepreneurs. Since Mao's boot was lifted from their necks, they have built marvels, from the skyscrapers of Shanghai to the factories of Guangdong. Yet mainland Chinese business leaders operate in the shadow of a secretive and unaccountable ruling party. To get on, many join it. Some do so reluctantly, to avoid being crushed. Others do so gladly, hoping to use the power of the state to enrich themselves.

Individual party members are not entirely above the law. If a local bigwig behaves so appallingly that the resulting protests are heard in Beijing, the party may cut him down to size. In October last year the son of Li Gang, a senior police officer in Baoding, killed a pedestrian while allegedly drink-driving. He sped off, shouting, “report me if you dare; my dad is Li Gang!”

News of the incident went viral in the Chinese blogosphere. Pop songs with the refrain “My dad is Li Gang!” quickly circulated. Li Gang was forced to make a televised apology. His son was arrested. China's leaders would like the 95% of the population who are not members to think that the party cares. But the most revealing fact is that Mr Li junior evidently thought he could get away it.

The party's tentacles are everywhere. State-owned firms do its bidding. Private firms must avoid offending it. Projects it supports make rapid progress. For example, it wants China to dominate the market for green energy. So when the price of polycrystalline silicon (the main raw material for solar panels) shot up in 2007-08, a businessman, Zhu Gongshan, won swift approval to build a factory to make it, and China's sovereign-wealth fund invested $710m in his venture.

But since the party is accountable neither to voters nor to the law, there is little to prevent its bosses from abusing their power. The children of some of China's leaders have amassed huge fortunes in murky ways. Banks often lend to the well-connected instead of the creditworthy. Local leaders levy taxes that have no basis in law.

Because business and power are so entwined, even the most able businesspeople are treated with suspicion outside China. For example, Huawei, a maker of telecoms equipment, whose products are generally considered excellent, nevertheless has trouble doing business in America because its founder, Ren Zhengfei, is a retired army officer. Some American congressmen assume that Huawei is a front for the People's Liberation Army. They fear that if the firm is allowed to supply sensitive communications infrastructure, it might bug it so that China's spies can listen in. There is no evidence to support this idea, but no way to investigate it either: Huawei's ownership structure is opaque.

The perception that commercial success often depends on political ties makes inequality in China more galling. In the mid-1980s Chinese incomes were more evenly distributed than India's—hardly surprising, since China was nominally communist and India is afflicted by a caste system. But now China is less equal than India, with a Gini coefficient of 0.4 to India's 0.37. China has 800,000 dollar millionaires, but also 400m people who live on less than $2 a day.

The disparity between rural and urban incomes is also vast. City-dwellers make two-and-a-half times as much as rural Chinese—the widest such gap in any big country. This is partly because of a system of residence permits, called hukou, that resembles the pass system in South Africa under apartheid. People with a city hukou can live and work there freely. Those with a rural hukou can come to a city only as guest workers. Some 150m rural Chinese work in cities without the right to live there, in effect making them foreigners in their own country. They often cannot use public schools and clinics, and they are barred from public housing. Peasants who protest can be deported back to the countryside.

The government has promised to liberalise the hukou system, but cities can still exclude anyone they like, and often do. Real freedom of movement would prompt 250m peasants to move to the cities, predicts Yukon Huang, a former head of the World Bank's office in China. City folk don't want that. The incomers might clog their schools, build slums on their doorstep or compete with them for jobs.

Or for women. Guy Sorman, the author of a sceptical book about China, “The Empire of Lies”, describes a rule in Shanghai that allows a local man to obtain a hukou for his wife from outside after 15 years of marriage, but makes no provision for a Shanghai woman to marry someone from elsewhere. Asked why not, the mayor's office told Mr Sorman it was unthinkable that a Shanghai woman would marry a “foreigner”.

The hukou system was designed to help the party control the people. But by creating two Chinas, it is building up tensions that one day could explode.